Media group WPP (LSE: WPP) reported a fall in 2024 revenue, and the share price slid 20% in morning trading Thursday (27 February). The day’s low so far, of 616.6p, is the cheapest it’s been in the past 52 weeks.
From a peak in early 2022, the share price has lost more than 45%. But I don’t think the results are as bad as the day’s big sell-off suggests.
Disappointing quarter
Revenue less pass-through costs fell 2.3% in the fourth quarter. That dragged full-year revenue on the same basis down 4.2%. But on a like-for-like (LFL) basis, WPP reported a full-year gain, up 2.3%.
The company has been through a restructuring phase, and CEO Mark Read spoke of “significant progress against our strategy in 2024“. But he added: “The top line was lower, however, with Q4 impacted by weaker client discretionary spend.”
In a business dedicated to advertising, PR and commercial communications services, that’s key. But does anyone really expect discretionary spend to be booming right now when inflation and interest rates are high, and individuals and businesses alike have less of the disposable stuff in their pockets?
I don’t. And in the current economic environment, this set of results looks decent to me. If anyone thinks the market has overreacted and unfairly marked a stock down, it’s a good time to consider buying, right? That’s what’s in my mind.
Changing strategy
WPP’s refocus of recent years looks to be bearing fruit. With its simplified client structure, around 92% of its business is now represented by just six agency networks.
As with many companies in public-facing industries, artificial intelligence (AI) is growing in importance. The company described AI, data and technology as “increasingly central to the way we serve our clients; critical to new business wins“.
Wins include Amazon, Johnson & Johnson, Kimberly-Clark and Unilever. These few alone make for a nicely diversified global selection, and to me they show WPP’s wide appeal.
WPP expects 2025 full-year LFL revenue less pass-through costs to be somewhere between flat and a 2% drop. That’s a bit disappointing. And I suspect it could keep the share price under pressure for much of the year.
AI future
The focus will be on AI development in the coming year. But I worry AI could erode its competitive advantage. Imagine a time when all we’d need to do is ask an AI model to design an advertising and marketing campaign.
Could it eliminate the need for media agencies like WPP altogether? I don’t see it happening any time soon. And I reckon expertise, experience and business contacts should still have lasting value. But it’s a scary thought at the back of my mind.
Ultimately it has to be down to valuation. Prior to these results, analysts had the price-to-earnings (P/E) ratio dropping to 9.5 by 2026. The 39.4p dividend just announced represents a 6% yield on the 650p share price at the time of writing.
WPP has long been bubbling under my list of potential buys for my ISA.These results might just move it up a bit.
